Question

Palmer Products has outstanding bonds with an annual 8 percent coupon. The bonds have a par value of $1,000 and a price of $865. The bonds will mature in 11 years. What is the yield to maturity on the bonds?

Answer 1

The yield to maturity on the bonds is 10.0868%

Explanation:

Given,

Annual coupon rate = 8% = 0.08

Par value = $ 1000

Price = $ 865

                               N = 11 $\times$ 1 .

                            PV = $ 865

                         PMT = ( Par Value $\times$ The coupon rate) / F

                                 = ( 1000 $\times$ 0.08 ) / 1

                                 = 80.

                           FV = 1000.

Financial calculator solution

the yield to maturity = I = 0.1008668

                                      = 10.0868% .